You don’t need to be an accountant to start a business. Even if you’re not very skilled with money, you can still turn your vision into a reality.
That doesn’t mean you can be completely lacking in financial literacy. The following are a few essential concepts and skills all entrepreneurs should understand.
Don’t worry if some of these topics are new to you. It’s always possible to learn. Of course, you can’t learn the right skills if you don’t know what to focus on.
Specifically, all business owners should have a decent grasp of these finance essentials:
Funding Options
There are many potential sources of funding for your business. They include business loans, personal savings, investors, family and friends, and more. There are also alternative options such as crowdfunding.
Your goal should be to acquire capital from multiple sources. That’s why it’s important to thoroughly research all your options. Each has its own set of pros and cons. You’ll be much more likely to choose the right source of funding for your business if you take the time to brush up on this subject.
Budgeting
You can’t stay in business for very long without a budget. Even if you have a strong vision and work ethic, you won’t succeed if you run out of operating capital.
Avoid this by learning how to create a thorough business budget. While this isn’t necessarily a task many people enjoy, it is easier than you may think. There is now a wide range of apps that simplify budgeting for business owners.
Inventory Management
This is another potentially tedious task that is nonetheless essential. Granted, the degree to which it is important will vary from one business to another. Inventory management is far more crucial at a major retail store than a startup creating a social media app.
That said, if you have any type of inventory at all, you need to manage it effectively. That means setting par levels to ensure you never run out of key items, studying seasonal trends to determine if certain items are more popular at certain times of year, adopting a “first in, first out” policy to avoid losing money resulting from damaged inventory, and more.
Cash Flow
You don’t simply want to understand the basics of cash flow. You want to understand how various factors can impact it in various ways.
For example, perhaps your clients have a relatively long amount of time to pay invoices. This can put you in a difficult financial situation if you don’t consider it when spending money. Even if you theoretically have enough capital in the form of unpaid invoices (which can be turned into cash through invoice factoring in emergencies), you might not have enough liquidity to stay afloat until they are paid.
This is a concept you need to understand. You can’t merely consider how much money your business stands to bring in. You also need to pay attention to the schedule and rhythm of your cash flow.
Responsible Borrowing
Never make the mistake of borrowing money without planning accordingly and thoroughly first. You’ll put your business at risk (and make it difficult to acquire more funding in the future) if you default on your loans. Knowing how to fund your business is just one step. You also need to know how to avoid borrowing more than you can pay back.
Again, don’t assume you can’t succeed if you don’t understand all these topics thoroughly just yet. There’s always time to learn! When you do, you’ll be far more likely to start a business that lasts.
